The Reserve Bank of India today cut repo rate by 25 basis points or bps, lowering its key lending rate to a six-year low of 6.25 per cent. Banks are expected to pass on the benefit of lower rates to customers.
Currently, banks follow the marginal cost-based lending rate or MCLR mechanism for pricing new floating-rate loans. This new regime came into effect from April 1 this year. Earlier, banks used to price their loans according to their base rates. Customers whose home loans are still linked to base rates can also shift to MCLR rates for a fee. The base rate is also expected to trend lower after RBI's rate cut.
Under the MCLR mechanism, the rates are closely linked to the cost of incremental deposits.
The RBI on its part hopes that the recent cut in small savings rates as well as its steps to infuse liquidity into the financial system will help banks to transmit its rate cuts to customers.
"The easy liquidity conditions engendered by the Reserve Bank's operations should also enable the smooth transmission of the policy action through various market segments. Furthermore, banks should find added impetus for better transmission by the recent downward adjustment in small savings rates," the central banks said in its policy statement.
Since January 2015, the RBI has cut the repo rate by 175 basis points but banks have passed less than half of the central bank's rate cut to their customers. Repo rate is rate at which RBI lends to the banks.
Rating agency ICRA said that after the RBI's rate cut provides banks some room to lower their lending rates. "No change in the central bank's liquidity neutral stance amidst incomplete transmission of past policy action as well as the recent reduction in various small savings rates, does provide some room for banks to lower their lending rates," the rating agency said.
Assuming banks cut their interest rate cut by 25 bps, it would result in monthly savings of Rs 488 or Rs 5,855 annually for customers with home loan of Rs 30 lakh. This is based on home loan interest rate falling to 9.25 per cent from 9.5 per cent on a 20-year loan.
For customers, with Rs 50 lakh and Rs 75 lakh loans, the annual savings would be Rs 9,759 and Rs 14,638 respectively, assuming the same interest rate and loan tenure.
source ndtv profit
Currently, banks follow the marginal cost-based lending rate or MCLR mechanism for pricing new floating-rate loans. This new regime came into effect from April 1 this year. Earlier, banks used to price their loans according to their base rates. Customers whose home loans are still linked to base rates can also shift to MCLR rates for a fee. The base rate is also expected to trend lower after RBI's rate cut.
Under the MCLR mechanism, the rates are closely linked to the cost of incremental deposits.
The RBI on its part hopes that the recent cut in small savings rates as well as its steps to infuse liquidity into the financial system will help banks to transmit its rate cuts to customers.
"The easy liquidity conditions engendered by the Reserve Bank's operations should also enable the smooth transmission of the policy action through various market segments. Furthermore, banks should find added impetus for better transmission by the recent downward adjustment in small savings rates," the central banks said in its policy statement.
Rating agency ICRA said that after the RBI's rate cut provides banks some room to lower their lending rates. "No change in the central bank's liquidity neutral stance amidst incomplete transmission of past policy action as well as the recent reduction in various small savings rates, does provide some room for banks to lower their lending rates," the rating agency said.
Assuming banks cut their interest rate cut by 25 bps, it would result in monthly savings of Rs 488 or Rs 5,855 annually for customers with home loan of Rs 30 lakh. This is based on home loan interest rate falling to 9.25 per cent from 9.5 per cent on a 20-year loan.
For customers, with Rs 50 lakh and Rs 75 lakh loans, the annual savings would be Rs 9,759 and Rs 14,638 respectively, assuming the same interest rate and loan tenure.
source ndtv profit
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